The billionaire philanthropist has two dozen stocks in his holdings, but just four account for the vast majority of his portfolio.
Most people have probably heard of Bill Gates, best known as the co-founder of Microsoft (MSFT 0.11%) and, more recently, his activities as a billionaire philanthropist.
After helming the tech company he founded for more than a quarter of a century, the former CEO left Microsoft to focus on his charitable endeavors. Gates is currently worth $105.8 billion (as of this writing), according to Forbes, making him the 14th richest person in the world today. However, he has vowed to give most of his money to charity so that “the vast majority of my wealth would go toward helping as many people as possible.”
To facilitate that goal, he established the Bill & Melinda Gates Foundation Trust. “Our mission is to create a world where every person has the opportunity to live a healthy, productive life,” according to the Gates Foundation website. Through the end of 2023, the foundation has paid out $77.6 billion since inception, “taking on the toughest, most important problems.”
While the Trust continues to own stakes in two dozen companies, to close out the second quarter, 81% of its holdings comprised just four stocks.
Image source: Getty Images.
1. Microsoft: 30%
It shouldn’t be a surprise to anyone that the Trust’s largest holding — by a wide margin — is Microsoft, the company Gates founded. The Foundation owns roughly 35 million shares of Microsoft stock, valued at roughly $14.3 billion.
However, this isn’t your grandfather’s Microsoft. Beyond its legacy software, browser, and operating systems, the company is now a major player in a number of emerging industries. It’s the world’s second-largest cloud infrastructure provider, which also gives Microsoft the pole position in marketing artificial intelligence (AI) products and services to its cloud customers.
Management noted that its Azure Cloud growth included “eight points from AI services,” which shows this strategy is driving additional business. These AI-related services, including its AI-powered digital assistant — Copilot — could generate incremental revenue of $143 billion by 2027, according to analysts at Evercore ISS.
There’s also Microsoft’s quarterly dividend, which the company has been paying consistently since 2004 and has raised every year since 2011. The current yield of 0.8% might seem like peanuts, but that’s augmented by stock price gains of 202% over the past five years (as of this writing). Furthermore, its payout ratio of less than 25% illustrates that there’s likely much more potential upside from here.
Given the company’s track record of success, I get why Gates has a soft spot for Microsoft. I believe it will continue to be one of his most profitable investments — that’s why I own shares.
2. Berkshire Hathaway: 23%
Fellow billionaire philanthropist Warren Buffett, CEO of Berkshire Hathaway (BRK.A 1.32%) (BRK.B 1.16%), has joined Gates in his vow to donate the vast majority of his assets to charity. Buffett signed the “Giving Pledge” in 2006 and has thus far donated more than $43 billion to the Trust, including $5.3 billion in Berkshire Hathaway stock earlier this year. As a result, the Gates Foundation currently holds nearly 25 million shares, worth more than $11 billion.
Berkshire Hathaway stock represents instant diversification thanks to the company’s dozens of business interests and stock holdings — so it isn’t surprising it represents such a high percentage of the Trust’s holdings. Furthermore, Berkshire rakes in billions of dollars in dividend income each year and holds a whopping $277 billion in cash.
Given the diversity of its assets, the ongoing windfall of dividend income, and Buffett’s track record — which is without equal — I think it’s a wise choice keeping so much Berkshire Hathaway stock in the Trust’s coffers.
3. Waste Management: 15%
Gates is a fan of companies with strong pricing power and robust recurring revenue, and it would be difficult to find a better example than Waste Management (WM 0.27%). Simply put, society will continue to generate waste for the foreseeable future. The Gates Trust has a stake of more than 35 million shares, worth $7.2 billion.
Waste Management is expanding beyond its trash collection roots, recovering glass, paper, metal, and plastics to redirect to its reclamation stations for recycling. The company also collects landfill gases from its sites to generate electricity, another growing source of income.
In the second quarter, revenue increased by 5.5% year over year, while its adjusted operating EBITDA (earnings before interest, taxes, depreciation, and amortization) increased by 10%, fueled by higher payments for recyclables and overall price increases.
There’s also the dividend to consider. Waste Management has been making consistent payments since 1998 and has increased its dividend for 21 consecutive years. The current payout yields 1.46% and boasts a payout ratio of just 46%, so there’s ample room for future increases.
I don’t own Waste Management stock, but for income investors, I think it’s a savvy pick.
4. Canadian National Railway: 13%
Gates and Buffett also share an affinity for railroads. When Berkshire bought Burlington Northern Santa Fe in 2009, Buffett said railroads transported goods “in a very cost-effective way … they do it in an extraordinarily environmentally friendly way … [releasing] far fewer pollutants into the atmosphere.” Gates obviously agrees, as the Trust owns almost 55 million shares of Canadian National Railway (CNI 0.64%), worth roughly $6.2 billion.
Canadian National is unique in that it’s the only transcontinental railroad in North America, connecting the Atlantic coast, the Pacific coast, and the Gulf of Mexico. To Buffett’s point, railroads are four times more efficient than trucks, making them a more cost-effective option while also reducing greenhouse gas emissions by 75% compared to over-the-road trucks. There’s also a strong economic moat and significant barriers to entry, which makes railroads even more appealing.
Canadian National has a consistent record of dividend payments, with increases every year since its 1995 IPO. The dividend has a current yield of 2.2%, and its payout ratio of 38% suggests there’s plenty of room for additional upside.
I don’t need to be convinced about the value afforded by an investment in Canadian National Railway — I’m already a shareholder.
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